When you take out a mortgage, most lending institutions require that you pay private mortgage insurance (pmi) if your down payment is less than 20% of your new home. A normal annual payment of PMI is 0.5% of the original loan. A $100,000 loan, for example, would require a $500 annual payment for PMI insurance. What most people do not know, or do not think about, is that they can stop paying PMI insurance if the loan to value ratio (LTVR) is less than 80%.
After paying a mortgage for a few years, a small chunk of the principle on the loan is paid off and the home has probably appreciated. Figure out the remaining balance of principle that still needs to be paid off on the loan, and hire an appraiser to determine the current value of your home.
If the home has appreciated a fair amount, there is a good possibility the new loan to value ratio will be less than 80%, eliminating the need for PMI insurance. It’s a good idea to research appreciation rates in the area your home is located before you hire an appraiser so you have an idea if it is possible for the LTVR to be below 80%. An appraisal usually costs $300 – $500, but it will be worth it to save thousands of dollars by not paying the PMI insurance.